Determinants of Success of M&A Transactions

Table of Content

Motivation

1. Introduction

2. Theoretical Foundations

2.1 Drivers, Importance and Risk Factors of M&A

2.2 Relevance of the German Economy in the Global Context

2.3 Influencing Factors on M&A Success

2.3.1 Geographic Scope: Cross-Border vs. Domestic M&A

2.3.2 Industry Relatedness: Cross-Industry vs. Intra-Industry M&A

2.3.3 Other Drivers of M&A Success and Risk

3. Methodology of the M&A Study

3.1 Event Study Approach

3.1.1 Time Series Analysis for the Expected Return Estimation

3.1.2 Calculation of the Cumulative Abnormal Return

3.2 Regression Analysis

4. Data and Sample Selection

5. Results and Analysis

5.1 Results of the Cumulative Abnormal Return Calculation

5.2 Regression 1 – Full Regression Model

5.2.1 Underperformance of Cross-Border Deals

5.2.2 Underperformance of the Banking Industry

5.2.3 Underperformance of Non-Tech Acquirers

5.3 Regressions 2.1 and 2.2 – Separation of Cross-Border and Domestic Deals

5.3.1 Underperformance of Cross-Border Deals within the EEA

5.3.2 Overperformance of Domestic Conglomerates and Tech-Acquirers

5.4 Regressions 3.1 and 3.2 – Separation of Cross-Industry and Intra-Industry Deals

5.5 Regression 4 – Industry Comparison

5.6 Regression 5 – Banking Industry

6. Implications and Limitations of the Study

7. Conclusion

Objectives & Research Topics

The primary objective of this research is to evaluate the wealth effect of merger and acquisition (M&A) activities on German DAX 30 companies and to identify the critical drivers of short-term success, specifically focusing on the roles of geographic scope and industry relatedness in shaping shareholder perceptions and abnormal returns.

• Empirical analysis of 274 M&A transactions involving German DAX 30 firms between 2002 and 2019.
• Application of an event study approach to calculate Cumulative Abnormal Returns (CAR) around the announcement date.
• Investigation into how cross-border versus domestic deals influence acquirer performance.
• Assessment of the impact of industry relatedness (intra-industry vs. cross-industry/conglomerate deals) on shareholder value.
• Evaluation of industry-specific performance, with a dedicated focus on the banking and high-tech sectors.

Excerpt from the Book

Summary of Chapters

1. Introduction: Presents the research motivation, background of M&A in corporate finance, and the research gap concerning DAX 30 firms.

2. Theoretical Foundations: Reviews existing literature on M&A drivers, risks, and the impact of geographic and industry-related factors on success.

3. Methodology of the M&A Study: Details the two-step event study and regression approach used to estimate abnormal returns and analyze influencing factors.

4. Data and Sample Selection: Describes the selection criteria for the 274 M&A deals involving DAX 30 companies between 2002 and 2019.

5. Results and Analysis: Discusses findings from the regression models, highlighting performance differences across cross-border/domestic deals, industries, and technological focus.

6. Implications and Limitations of the Study: Offers strategic advice for managers and reflects on the limitations of the event study approach regarding market anticipation.

7. Conclusion: Summarizes the study’s findings, confirming the value destruction on average and identifying specific sectoral and geographic performance drivers.

Keywords

Mergers and Acquisitions, M&A, Event Study, Cumulative Abnormal Return, CAR, DAX 30, Geographic Scope, Industry Relatedness, Cross-Border M&A, Conglomerates, Shareholder Value, Banking Industry, High-Tech, Synergies, Wealth Effect

Frequently Asked Questions

What is the core focus of this research paper?

The paper evaluates the short-term success of mergers and acquisitions (M&A) performed by German DAX 30 companies by analyzing shareholder reactions measured through Cumulative Abnormal Returns (CAR).

Which key variables does the study analyze regarding M&A success?

The study primarily investigates the effects of geographic scope (cross-border vs. domestic deals) and industry relatedness (intra-industry vs. cross-industry/conglomerates) on acquirer performance.

What is the primary objective of the research?

The main objective is to fill a research gap regarding DAX 30 companies and to provide evidence on whether these M&A activities create or destroy value for shareholders in the short term.

What scientific method is employed in this study?

The author uses a two-step approach: an event study method to calculate the Cumulative Abnormal Return (CAR) and a subsequent regression analysis to identify significant influencing factors.

What does the main body of the work cover?

The main body reviews the theoretical foundations of M&A, details the dataset and sample selection criteria, and presents the results of five distinct regression models, including sub-regressions based on transaction value.

What are the characterizing keywords of this study?

Key terms include Mergers and Acquisitions, M&A, Event Study, Cumulative Abnormal Return, DAX 30, Geographic Scope, Industry Relatedness, and Shareholder Value.

Why do banks show significant underperformance in this study?

The results suggest that banking sector consolidations often fail to improve economic performance, and many deals were initiated by regulators during the financial crisis to avoid bankruptcy, leading to value destruction.

How do cross-border deals perform compared to domestic deals?

The study finds that cross-border deals often underperform compared to domestic ones, particularly when conducted within the European Economic Area (EEA), due to intense market competition and potential overpricing.

Do conglomerates (cross-industry deals) destroy shareholder value?

Contrary to much academic literature, the study finds that conglomerates often perform better than intra-industry deals, particularly for domestic transactions, potentially due to portfolio diversification benefits.